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Donbas blockade, which began in late 2016 as a public initiative of ATO veterans eventually turned into a state policy and led to an end to the export of products of enterprises from the territories of the self-proclaimed Donetsk and Luhansk People’s Republics.
In response to the blockade of the uncontrolled territories of "LPR" and the "DPR", their leadership announced the "nationalization" of entities under Ukrainian jurisdictions operating in temporarily uncontrolled territories, which were exporting products to Ukraine and paying taxes there. For example, 43 objects were included in the uncontrolled part of the "DPR".
However, before the nationalization, most of the industrial enterprises had stopped because of the Donbas blockade. And this would be the main exam for the self-proclaimed republics, whether the leaders would be able to launch these enterprises. A kind of examination for vitality.
Commodity and market hunger
The initial euphoria from nationalization in "DPR" has quickly passed. Despite promises to start production at "state" enterprises, for a month and a half, only Donetsk brewery "Sarmat" came back to life, which has been closed for more than 2 years.
This event became very indicative for the economy, and it is not even about the dubious value of the enterprise's products, but that its launch only confirmed the rule.
During the whole period of the ATO, the food industry in the self-proclaimed "DPR" felt very confident, as it did not depend much on Ukraine in terms of purchasing raw materials and marketing finished products. Therefore, resuming production of beer relatively easy.
The heavy industry, which today is mostly worth it, is another matter. And the reason for this is the problems caused first by the blockade of uncontrolled territories, as well as by the nationalization of enterprises.
After the termination of transport communication with Ukraine, the metallurgical enterprises were left without raw materials, iron ore, and even more importantly, without the markets for finished products. All this, even without nationalization, made the work of enterprises virtually impossible.
The legal status of an unrecognized state does not allow them independently purchase necessary raw materials or sell finished products, which makes any production activities impossible.
Russia's help: ore in exchange for metal?
However, the leadership of the unrecognized "LPR" and "DPR" from the very first day declared that it relies on the assistance of the Russian Federation in the matter of supplying raw materials necessary for the enterprises of the metallurgical industry.
In general, technically, given the free border of self-proclaimed "republics" with the Russian Federation, this issue is very easy to solve: iron ore concentrate for metallurgists could be easily driven by convoys. As for coke, its extraction and production capacities, there is good infrastructure on the territory of the self-proclaimed "republics".
April 7, the head of the DPR, Alexander Zakharchenko, said that a basic agreement on supplies had already been reached. By the end of the month production at the main metallurgical enterprise of the self-proclaimed republic, Yenakiyevo Metallurgical Plant (YMP, Rinat Akhmetov's asset) would resume. April 10, the Russian media reported on the decision of the Russian Railways to introduce a 25% discount on the transportation of iron ore to the border of the self-proclaimed republics. April 12, information appeared on the beginning of deliveries of iron ore from Severstal, Russian metallurgical company.
Finally, April 14, the head of the Federal Agency for State Reserves of the Russian Federation (Rosrezerv), Dmitry Gogin, stated that "deliveries of raw materials for the enterprises of the southeastern districts of Donetsk and Luhansk are temporarily provided for by the humanitarian support of the territory at the expense of available federal reserves of material assets." Thereby confirming the supply of raw materials and assistance to the Russian Federation, although it was presented as "humanitarian" assistance, apparently with the aim of "covering up" Russian companies from imminent sanctions and trade with the unrecognized "republics".
However, the supply of raw materials for metallurgical enterprises in the territory of the self-proclaimed republics does not solve the second problemб the sale of finished products, which is impossible to do from the territory of the unrecognized and legally non-existent states. And there is only one option here: to sell to those who agree to take on the care of the "legalization" of the goods, but require low commodity prices instead.
Ukrainian companies that agree to close their eyes to the origin of the goods, might play the role of such a buyer; they would organize the legalization of the goods. Also Russian companies can help with this.
In general, the supply of iron ore to the enterprises of the self-proclaimed "DPR" for Russian metallurgical enterprises is not very profitable. The world price for iron ore has recently fallen, so selling cheaper raw materials is not very practical, but the main thing is not even that.
Russian and Ukrainian metallurgists traditionally compete with each other on international markets, and the stop of EMP and other enterprises gives Russian metallurgical companies a chance to take their niches. At the same time, the revival of the work of DPR metallurgical enterprises with a subsequent attempt to sell their products independently would reject this possibility, and these missed opportunities would not be compensated by the 25% discount on the transportation of iron ore.
However, Russian metallurgists may take responsibility for realization of the produced metal, thereby obtaining the main benefit. In the end, there may be a scheme for dealing with "give-and-take raw materials", according to which the metallurgical enterprises of self-proclaimed "LPR" and "DPR" would simply process raw materials coming from the Russian Federation and ship the produced metal there, receiving money only for processing Raw materials. Such a scheme would save the enterprise and pay workers a small salary, which is still not paid at most of the "nationalized" enterprises. Yenakiyevo Metallurgical Plant was not an exception. After its nationalization, employees were promised to get some compensation in the amount of 4 thousand Russian rubles (1900 hryvnia), but so far the payments have not started.
Without hope of launch?
Metallurgists could be called "lucky." Even if the produced metal is sold at a lower price than its present value, it will still allow to start production and to receive wages. But there are numerous enterprises in the self-proclaimed "DPR", which have less hopes for launching. And first of all, these are front-line enterprises.
Different is the situation in Horlivka. April 12, "Acting Minister of Industry and Trade" of self-proclaimed "DPR" Alexei Granovsky presented the new director - Artem Serdyukov. The enterprise has been stopped for more than 2 years, and people got the wages with delays.
During the meeting, DPR officials and the new director traditionally assured all employees of preserving jobs and continuing payment of the existing salary in rubles at the rate of 1 to 2. It was also announced that the main production could be launched. However, leadership of the self-proclaimed "DPR" regularly voice such assurances.
Also, they regularly promise to start production at another major city enterprise - Horlivka Machine-Building Plant named after Kirov. It stopped working in 2014, was deprived of a part of the equipment taken out by the owner of the Corum Group to Druzhkivka and Kharkiv, and occupied by illegal armed formations. It is increasingly turning into a ghost enterprise.
In the autumn of 2015, mining stopped at the mines of Horlivka state enterprise "Artemugol", and the mines now work only for pumping out water.
At the same time, Horlivka Coke Plant, which restored production in 2015, and the producer of medicines "Stirolbiopharm", owned by Hero of Ukraine Nikolay Yankovsky, is still operating in the city.
However there is another option: there might be fake opening of the main industrial entities of the unrecognized republics. Therefore, it is necessary to regard the "nationalization" of Ukrainian enterprises in uncontrolled territories not only for economic reasons. After all, the self-proclaimed authorities needed the factories and mines as a lever of pressure on Kyiv.